Understanding the Merit Shop Contractor Cost Advantage

13 May 17, 2010  Featured, Federal Construction, State & Local Construction

One of the biggest complaints against government-mandated project labor agreements (PLAs) is that these anti-competitive schemes saddle nonunion and merit shop contractors with inefficient union work rules and high operational costs unique to unionized contractors, which results in reduced competition and increased costs to taxpayers.

Studies have found that these costly inefficiencies, coupled with reduced competition from quality merit shop contractors, increase the construction costs of PLA projects between 12 percent and 18 percent compared to similar non-PLA projects.

PLA mandates prevent qualified merit shop contractors and their skilled craft employees from delivering quality, safe, on-time and on-budget construction projects to taxpayers.

It is important to note that merit shop cost advantages are not achieved by cutting employee pay and benefits or exploiting workers, as is often incorrectly claimed by PLA proponents. Labor costs associated with employee wages and benefits are held constant by state and federal prevailing wage laws that both union and nonunion contractors must follow, regardless of whether a PLA is utilized on a project.

Studies commissioned by union contractor groups and independent research firms confirm that the cost advantages gained by merit shop contractors over union firms are achieved through the efficient management of operational costs and an innovative labor-management technique employed regularly by merit shop contractors called multiskilling.

Cross Training

Union vs. Nonunion Operational Costs
A 2004 Electrical Contracting Foundation study, A Comparison of Operational Cost of Union vs. Non-Union Contractors, was commissioned “to investigate the main differences between unionized electrical contractors (ECs) and open shop contractors, as well as to identify the main cost drivers and how they differ between the two.”

The study is remarkable because of the findings and the fact that it was produced by union interests.

Union signatory electrical contractors through an ELECTRI’21 grant invested in this study because of concerns that “…current measurements of the market share of the signatory contractors, and therefore of the IBEW, show a 30-year decline.”

The study found that:

“…the convoluted expectations and regulations of the labor union are an added cost without providing any added value to the stakeholders.  On the other hand, open shop contractors enjoy a higher level of freedom that results in lower cost.”

“Contrary to common perception, the main difference between the two styles of operations is not the labor cost, but rather how the labor is managed.”

To purchase the study, visit http://www.necanet.org/store/products/index.cfm/F2210.

Multiskilling is a labor utilization strategy in which workers possess a range of skills that are appropriate for more than one work process and are used flexibly on a project or within an organization. It has tremendous labor productivity advantages for contractors, but it is forbidden by typical union work rules and, by extension, PLAs.

An April 1998 study, “An Analysis of Multiskilled Labor Strategies in Construction” by the Construction Industry Institute, found:

“Benefits of multiskilled labor utilization were observed with regard to total project labor cost, employment opportunities for construction workers, and other industry labor issues. These benefits included conservative estimates of 5 percent or more total labor cost savings, a potential 35 percent reduction in required project workforce, a potential 47 percent increase in average employment duration, and an increase in wage/annual earning potential for multiskilled construction workers. Productivity improvements were reported by over 75 percent of those surveyed in the study.”

PLAs defer to each local union’s collective bargaining agreement, which reference each local union’s set of work rules that determine how employees in each trade handle specific job tasks. Think of work rules as a job description designed to ensure that union members are not taking the work of other union members in other trades.

Unions claim the purpose of these rigid job descriptions is to ensure quality construction, but in today’s construction marketplace, these work rules are used as an excuse to create as many jobs for as many union members for as long as possible. This is known in the industry as “featherbedding,” or spreading employment by unnecessarily maintaining or increasing the number of employees or the time used to complete a particular job.

For example, a plumber cannot touch carpentry work that may be preventing a plumber from completing a task. That job task belongs to a union carpenter. An electrician can’t move sheetrock without asking a laborer, a painter can’t use a roller wider than 9 inches, etc. These rules slow down productivity, especially if idle labor is not employed efficiently on a jobsite on other tasks, resulting in significant down time and added costs.

Other union work rules call for more workers than are needed for a specific task. These jobs are relics of decades-old collective bargaining agreements that aren’t necessary due to modern technology.

For example, the Buffalo News reported that in the Buffalo, N.Y., metropolitan area, union agreements require task-specific workers for automatic equipment that only needs to be turned on and off  (“Featherbedding is highway worker strike’s unsettled issue,” 5/15/05). Some agreements also require “crane oilers,” a job long considered obsolete. Other rules require onsite mechanics for machinery even though that work is conducted by unionized maintenance firms offsite. These are symptoms of the arcane process of adjudicating job descriptions through collective bargaining agreements and union work rules, rather than commonsense and efficiency.

Update Summer 2011
Earlier this year, NY building associations representing contractors signatory to union agreements with numerous trades asked for reforms to inefficient work rules contained in union agreements that increase costs and reduce productivity. They cited changes in work rules outlined in the Regional Plan Association report, Construction Labor Costs in New York City: A Moment of Opportunity, which found that “arcane union work rules, inefficient practices, and featherbedding impose 20 percent to 30 percent in excess costs, leading to dramatic increase in nonunion work on NYC construction sites.”  

The study also mentioned that NYC developers complained that NYC PLAs were a failure and delivered little to no promised cost savings:

“Management has been almost universally disappointed with the actual savings achieved—2 to 4 percent rather than the promised 20 percent.”
Because the construction industry in NYC is heavily unionized, it was suggested that a PLA can offer concessions to normal union work rates and rules that would otherwise be prevalent on a construction project absent a PLA. Unlike other markets, there would not be an increase in construction costs due to a lack of competition from qualified nonunion contractors – discouraged from bidding on PLA projects – because nonunion firms have limited penetration in NYC’s large vertical construction markets. For more research on the impact of PLAs in predominantly union markets, please read this.  

Let Open and Fair Competition Work
Nonunion contractors have developed strategic advantages in the workplace by streamlining operational costs and using labor more efficiently through multiskilling.  PLAs eliminate these efficiencies and prohibit taxpayers and private project owners from getting the best possible product at the best possible price.  It’s another reason to oppose PLAs and promote open and fair competition on public and private construction projects.

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13 Responses to Understanding the Merit Shop Contractor Cost Advantage

Patrick May 17, 2010 at 4:14 pm

‘Multiskilling’ is just a made up technical sounding word for handyman!

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BenBrubeck May 19, 2010 at 8:58 am

You can think of multiskilled construction craftspeople as handyman in an abstract way, I guess. However, this term is well-known in the construction industry and it is common for employees to be formally trained (through state and federally approved apprenticeship programs) in one trade and have on-the-job experience and employer-run training for specific work sequences across multiple trades and crafts. This training and labor-management practice is traditionally prohibited by union work rules that promote featherbedding.

Patrick May 19, 2010 at 10:43 pm

Point is, these workers attended a state accredited school. They also have the corresponding years of on on the job training to be considered professional workers capable of performing quality work.

I would argue, further ’employer-run training’ would provide them with no more skills than your average handyman that spends his days trolling craigslist.

Proper training would require further education in a state accredited school specific to a craft. Followed by proper amounts of on the job experience to truly become a multi craft professional. Provide the documentation and you have an argument.

I wouldn’t go into surgery with a nurse that learned how to do a triple bypass from standing next to and watching a doctor do one. According to you, if the hospital the nurse worked for considered that proper ’employer-run training,’ well then he should be qualified to do surgeries.

BenBrubeck May 20, 2010 at 9:29 am

I see your concerns, but I think you have to allow room for managers and foreman to allow multiskillers to perform simple tasks that would require a laborer or additional manpower that is a drag on efficiency under union work rules. This is not a black and white issue – there is some discretion. And besides, if the multiskiller has the skills and experience with certain crafts, then they should have the opportunity to perform that work. It is all about merit. Plenty of union and nonunion journeymen never went through formal apprenticeship training and they still have the skills to produce quality work.

I also think you underestimate some of the employer-run training.

Finally, your fallacious analogy doesn’t work here. I wouldn’t want a nurse to perform triple bypass surgery either. But we are talking about construction. Why should a contractor, taxpayer or construction owner be forced to hire Michaelangelo to paint office walls or hire additional workers to sit around and perform simple tasks like moving equipment that anyone can perform, because of restrictive union work rules?

To have a few politicians with this kind of agenda - Page 17 - US Message Board - Political Discussion Forum August 2, 2010 at 5:57 pm

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dave March 12, 2011 at 7:38 pm

the abc contractors want all the mexican and brazilian workers on the jobs. i have worked the industry for 27 years and i have witnessed it first hand.illegal undocumented workers and you know thats the truth

sprink June 6, 2011 at 4:57 pm

One thing that the Merit-shop philosiphy fails at is the mandate to have journeyworkers and apprentices in a formalized apprenticeship training program. Yes,you do acknowledge that skill and training is valuable, but having the contractor associaction(ABC, a “union” for contractors)run the training program is a mistake. That is where the union has a distinct advantage, training.They have the time and resources to admintister a superior program, BECAUSE they will remove the learner from the field for substandard performance, and ALL contractors and their employees MUST participate. Perhaps if you took all the energy and money you expend fighting unions and their superior training and skills, you would find that the union has some redeeming qualities that would make them an attractive partner in your business plan. Why spend your time, money and energy fighting a system that produces high skill journeymen that you don’t have to train?

Anthony Anglin August 30, 2011 at 12:46 pm

[Multiskilling] Come on!!! Let’s get real. Would you call a plumber to come to your house to fix a wiring problem?

Anthony Anglin August 30, 2011 at 12:59 pm

Reminds me of the old saying:”Jack of all trades, master of none.”

Ben Brubeck September 1, 2011 at 12:21 pm

Of course not.

Would you prevent a plumber from cleaning up tile displaced while fixing a leaky bathtub? Union work rules would because cleaning up and moving debris is the “job” of a laborer and not a plumber.

If a worker has multiple skill sets, especially for simple tasks, why not let them perform the work instead of having to hire multiple experts?

Anthony Anglin September 3, 2011 at 12:01 pm

Say that said plumber is on a big hotel job. Why prevent the plumber from doing the job he was trained in by cleaning that mess up when he could be working on the next tub.

Ernie November 29, 2011 at 6:19 pm

Anthony, you must be a union worker that benefits from these PLA schemes. Every union and nonunion contractor will tell you that most union work rules are inefficient and increase costs needlessly. The scenario you have laid out doesn’t squeeze out all of the inefficiencies. Multi-skilling and sound management practices does a better job getting the customer the best project at the best price.

Sprink, as a member of ABC, ABC is not a union for contractors. It is an association. Do you belong to AAA or does your grandma belong to AARP? It is the same thing. Here is a major difference to consider: ABC does not force contractors to pay a penalty to drop memberships or strip them of their retirement benefits if they join another association. Unions prevent union workers from working for nonunion employers (they will take away your pensions and fine you or kick you out of the union if you put your union card in your boot and moonlight to put food on the table – if you are enrolled in a union apprenticeship program, good luck getting out of it….).

There is more than one way to train a construction worker besides union apprenticeship programs. Employer and ABC training programs are effective too and they don’t limit apprentices to the good old boy network. It is all about MERIT.

Unions should be commended for their investment in their training programs, but that doesn’t give unions a license to use PLAs to cut out all of your competition. Besides, I’m aware of a number of union members that have not gone through union apprenticeship programs. And what about the nonunion workers that once belonged to a union and went through union apprenticeship programs but left because of the BS they had to deal with just to get a job. They are technically nonunion and have the same skill set as union members, so how are they magically more qualified to build projects and why should they be discriminated against via PLAs and other union efforts to limit competition?

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